A ‘financial vortex’ of competing priorities may reduce retirement savings by up to 37%, Goldman Sachs finds

Life goals and other financial priorities can get in the way of saving for retirement.

Over the long term, those competing priorities — dubbed the “financial vortex” — may reduce U.S. workers’ retirement savings by up to 37%, according to new research from Goldman Sachs Asset Management.

That’s even as more U.S. workers — 65% — say they are confident in their ability to meet their retirement savings goals, up from 57% last year, the firm’s July survey of 5,261 U.S. individuals found.

Yet even for the most diligent savers, life events can get in the way of retirement preparedness.

Having to retire earlier than expected at age 62 may reduce total retirement savings by 25%, Goldman Sachs’ research found.

Meanwhile, student loans may result in a 19% reduction in total retirement savings; caregiving may cause an 18% shortfall; early career cash outs pointed to a 16% decline; salary increases that didn’t coincide with proportional retirement savings increases resulted in a 13% reduction; and financial hardships resulted in a 5% decrease.

For savers who experience multiple such events or factors, it’s “easy to see” how they may suffer a 37% decline in their retirement savings, Chris Cedar, senior retirement strategist at Goldman Sachs said during a presentation on the research.

“The reality for retirement savers is that they’re going to have to figure out how to balance some of these real-life impacts more than they’ve had to do so in the past,” Cedar said.

With salary increases, the model forecasted for ongoing 3% adjustments as well as seven growth events over the course of a career. That includes 10% for early career increases and 6% for late career ones.

The potential for a shortfall even with those increases points to the challenge all workers face of accumulating wealth for retirement while also funding their lifestyles today.

“There’s a balance between living better now and living better later,” said John Merrill, president and founder of Tanglewood Total Wealth Management in Houston, which is No. 58 on the CNBC FA 100 list this year.

While events like a divorce, which Merrill calls a “financial wrecker,” may crop up unexpectedly even planned life milestones like the birth of a child can increase financial pressure.

“The main thing is discipline,” Merrill said. “People who are disciplined with their money, disciplined with their life, really are going to go so much further.”

The best approach is to pay yourself first — including at least 10% of your salary toward retirement and 5% toward an emergency fund — and then spend the rest, he said.

Other experts caution that increasing overall spending as salary and wealth goes up, known as lifestyle creep, should be avoided.

Having a higher-cost lifestyle creates two problems, according to Stephen Cohn, a certified financial planner and co-president of Sage Financial Group in West Conshohocken, Pennsylvania, which is No. 22 on the CNBC FA 100 list.

First, it makes it more difficult to save for long-term goals including retirement. Then at retirement, savers may find their nest egg falls short of their needs while they’re challenged with making up the income they need to sustain their lifestyle.

Some people may be willing to forgo having more saved toward retirement in favor of other nearer-term goals.

“There are people who say, ‘Me putting my children through college is more important to me than retiring at age 65,'” Cohn said.

Yet Goldman Sachs’ research points to many savers not having control of when they will retire.

The firm found that 21% of respondents said they believe they will have to delay retirement by four or more years due to the competing financial pressures they face, which may include credit card debt, saving for college and providing support to family members.

Yet among retirees, 50% retired earlier than expected, Goldman Sachs found.

Some individuals reach age 60 and are worn out and want to retire but unfortunately haven’t saved enough to make it work, noted Patrick McGinn, president of Retirement Resources Investment Corp. in Peabody, Massachusetts, which is No. 29 on the CNBC FA 100 list.

They may be faced with reduced Social Security benefits for claiming early. Plus, they also have to figure out how to cover their health care between age 62 and the Medicare eligibility age of 65, McGinn noted.

“Combined, it really makes that math very challenging,” he said.

The best way to prepare, he said, is to focus on the things you can control and try to find balance in your current lifestyle.

“Try to live below your means pretty consistently and that should result generally in a pretty good success rate,” McGinn said.